Efficiency and risk in european banking
David Marques-Ibanez (),
Franco Fiordelisi and
Philip Molyneux ()
No 1211, Working Paper Series from European Central Bank
We analyse the impact of efficiency on bank risk. We also consider whether bank capital has an effect on this relationship. We model the inter-temporal relationships among efficiency, capital and risk for a large sample of commercial banks operating in the European Union. We find that reductions in cost and revenue efficiencies increase banks' future risks thus supporting the bad management and efficiency version of the moral hazard hypotheses. In contrast, bank efficiency improvements contribute to shore up bank capital levels. Our findings suggest that banks lagging behind in their efficiency levels might expect higher risk and subdued capital positions in the near future. JEL Classification: G21, D24, C23, E44
Keywords: banking risk; capital; efficiency (search for similar items in EconPapers)
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Journal Article: Efficiency and risk in European banking (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101211
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